SUMMARY: Annually, the District considers its
financial position after the end of the second fiscal quarter.District staff has reviewed income and
spending patterns since July and determined that adjustment of the budget
developed last spring and adopted June 17, 2002 is required.The tables below summarize the proposed
budget changes:

RECOMMENDATION: Following presentation by District staff and
the public hearing, adopt the proposed mid-year budget adjustment for Fiscal
Year 2002-2003. The Administrative Committee reviewed the proposed
changes on January 21, 2003.

IMPACT OF STAFF AND RESOURCES:
The changes discussed in the background section relate only to current District
activities, including funding required this year for strategic initiative
projects already in progress.Future
funding that will be required for strategic initiatives approved by the Board
will be addressed during the 2003-2004 budget process.

PRIOR BOARD ACTION:The Board adopted the original Fiscal Year
2002-2003 budget on June 17, 2002.

The District Board adopted the
annual budget for Fiscal Year 2002-2003 on June 17, 2002.Revenues anticipated for collection in the
current year totaled $4,026,700. In addition to the budgeted revenues,
approximately $1,457,400 was to be utilized from prior-year fund balances to
pay the $5,484,100 in planned expenditures.As of December 31, 2002, actual revenue collections totaled $1,997,915
or about 48 percent of the budget amount.District staff has analyzed the revenue activity for the first six
months of the fiscal year, as well as changes in activities scheduled for the
second half of the fiscal year and recommends that various adjustments to the
revenue portion of the budget be made as discussed below.

As of December 31, 2002, the
District has received almost $540,000 in property taxes, which is about 62
percent of the budgeted amount.Based on
these collections, the budget for property tax revenue was increased by
$75,000.Interest rates have decreased
since the budget was adopted resulting in a projected reduction of $20,000 in
interest revenue for the year.User fees
collected for the first six months of the fiscal year exceeded expectations by
10 percent.It is anticipated that
collections for the fiscal year will exceed the budgeted amount by
$65,000.Other revenue adjustments
include an increase of $18,500 in project reimbursements for reimbursable
projects that have been increased on the expenditure side of the budget.The cumulative effect of the above
adjustments is a net increase of $138,500 in projected revenues for Fiscal Year
2002-2003.

Expenditures

The original budget envisioned
expenditures of $5,484,100 in the fiscal year ending June 30, 2003. As of
December 31, 2002, actual expenditures totaled $1,749,525 or approximately 32
percent of the annual budget.

A review of the personnel portion
of the 2002-2003 budget indicated that no changes to the budgeted amounts are
required.The supplies and services
portion of the budget was increased by $15,600 due to additional computer
hardware and software requirements for District wide IT support.This increase is due to the need to acquire
additional equipment to create a secure and stable network, backup redundancy
and additional costs incurred for switching to a new local Internet provider.

Fixed asset expenditures have
been increased by $5,500.Of this
amount, $3,000 is for replacement of the laptop computer used for Board
presentations.The additional amount of
$2,500 is required to complete purchases of three items included in the current
budget that cost more than the amount originally budgeted.

The Aother@
expense category includes annual accruals for the Flood and Drought Reserve,
Capital Equipment Reserve, election expense, annual reimbursement of the
capital cost of the office building and the contingency.The increase of $1,000, which is shown in the
table above in the Aother@ category, reflects an
adjustment to the contingency based on the increase in total expenditures.

Various adjustments were required
to program expenses.Major increases
include $51,000 to implement Ordinance No. 105 and $397,600 that was added to
the budget as a placeholder for the sediment control and intake retrofit
project at Sleepy Hollow.These amounts
were offset by numerous reductions to project costs such as $200,000 related to
the Seaside Groundwater Management Plan, $155,000 for the strategic initiative
to revise the water permit process, $25,000 for computer programming to improve
customer service and $40,000 for implementing demand management ordinances.These funds will not be expended in this
fiscal year but will be required in the Fiscal Year 2003-2004 budget.The net amount of all adjustments resulted in
a net increase to program expenses in the amount of $5,300.It is anticipated that actual expenditures
will be even less than the amended budgeted amounts if prior year’s patterns
prevail.

Changes in Fund Balances

Actual fund balances, as reported
in the draft annual audit report for the Fiscal Year ending June 30, 2002, were
$4,799,636, which is approximately $24,000 less than projected at the time the
budget for 2002-2003 was prepared.These
actual fund balances have been incorporated into this adjustment.

Exhibit
18-A consists of amended pages in the adopted budget that will be
distributed to Monterey County and other holders of the original budget
following Board approval.